Friday, November 14, 2008

Jamie Dimon for Treasury?

Well, what the heck.

Since we here at NotMakingThisUp already endorsed one candidate for an important financial post in the new administration (see “Jaimie Caruana for Fed Chairman!”), let’s do another: Jamie Dimon, CEO of JP Morgan, for Treasury Secretary.

Now, this idea actually has a shot—Dimon has been giving advice to Obama himself; consequently, Dimon's name has been tossed around as a candidate for Treasury, along with one even bigger name: Warren Buffett.

Buffett, I suspect, would rather stick needles in his eyes than take a political position reporting to the Senator Foreheads of the world. Can anybody seriously imagine Warren Buffett explaining financial markets to “Friend of Angelo” Chris Dodd?

(I recently bet a woman at a book signing that Buffett would never take the job. Actually, she bet me. She asked if I thought Buffett would be the next Treasury Secretary. I said something to the effect of “Not a chance,” and she immediately bet five bucks. I’ve already spent the money.)

But Jamie Dimon is something else. Speaking at a recent Merrill Lynch conference, Dimon gave perhaps the best explanation for the financial freeze-up I’ve ever seen, and it didn’t involve charts or graphs.

“Let’s do a little interactive questionnaire right here,” Dimon said, breaking off an attempt to answer a question about when lending will start to ease up. “How many of you have moved money from riskier assets to risk-free assets, to protect your investors’ capital?”About half the hands in the room went up.

“You’re the problem,” he said, smiling, but making the point. “You’ve made the right decision for your business, but until people start moving money the other way, we’re stuck.” [Those are not all exact quotes, but quite the gist of his comments.]

Even Chris Dodd could have understood him.

Dimon also gave a rousing windup to his talk, saying that anybody betting against the U.S. was making a huge mistake. He defended Bernanke and Paulson—“They’re making decisions on the fly,” he pointed out, adding that despite all the talk about how slowly the administration is moving, his counterparts in Asia are impressed with how swift the actions have been in comparison to past history.

Now, my dog Charles will be Treasury Secretary before Warren Buffett.Not that Charles has anything on Buffett, brain-cell-wise, if you get the drift. It’s just that Buffett has a company with over a quarter-million employees, over $100 billion in sales, and nearly 80 companies—every one of which he purchased—not to mention some serious financial derivatives now on the books in the form of S&P Index puts and CDOs.

He’s not going to turn all that over to some blind trust and start schmoozing Congresspersons who wouldn’t know a CDO from a CD.

The content contained in this blog represents the opinions of Mr. Matthews.Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

18 comments:

Anonymous
said...

I hope Mr. Dimon considers his committment to JPM shareholders before considering any Treasury position.

Frankly, I WISH President Obama would re-appoint Paulson with the intent of replacing him in a couple of years. This is probably not acceptable, but it would help Obama make good on his suggestions about some bipartisan appointments and its not really possible to upgrade from Paulson talent-wise. Dimon is in the ballpark, but he is needed a JPM.

Just fantasizing. Paulson's Wall Street heritage is no helpful to preceptions, despite the expertise.

First, it would seem inconsistent with Obama's broader message of "change" to replace Paulson, an ex-Goldman CEO, with Dimon, the current JP Morgan CEO. Obama's made a lot of centrist moves of late, but I envision him selecting someone in a completely different mold for this role.

My personal preference would be for Robert Schiller, one of the men who foresaw these problems with the greatest clarity, and a man with a vision that fits well with Obama's message and the current social mood. That said, I haven't heard anyone mention him for the task, so I'm probably wrong, and it'll likely end up being someone like Summers or Dimon.

Second, I disagree, in part, with Dimon's explanation of the current crisis. While risk-aversion may exacerbate the problem, it didn't cause it. The cause of this mess is not risk aversion, but too much debt. Specifically, as I'm sure you know, our total credit market debt is 360% of GDP. We must reduce this number to around 150%. I suspect, in Dimon's ideal world, we could accomplish this by simply growing our GDP at a faster rate than we grow our debt. Unfortunately, we've reached a point where that's no longer possible. We are now engaged in forced deleveraging, and people have begun hoarding on an individual and institutional basis. This lowers debt ratios, but will also likely lower GDP, creating an echo effect that slows the broader market. When GDP slows down, paying off the debt only gets harder, and the cycle snowballs.

In sum, I think these risk averse strategies are a natural and healthy reaction to prolonged and excessive periods of risk taking, and necessary to pay off debt and protect one's self against a prolonged period of depression. Unfortunately, the debt is large, the leverage was ludicrous, and the hoarding is irrevocable. Now that the ball's in motion, I don't think that there is anything that anyone, even someone as wise and shrewd as Jamie Dimon, can do about it.

Anything is possible, but just because he is capable doesn't he'll do it.

The argument why Buffett wouldn't take the position could apply to Dimon too. Dimon is at the top of his game as a banker and a master of his universe in JPM, so why would he give it up so that he can take a position where he will be grilled by a bunch of people whose primary job seems to be looking for scapegoats when things go wrong.

If I were a betting man, I would wager you five dollars that Dimon will not be the Treasury Secretary in the Obama administration.

">Unfortunately, the debt is large, the leverage was ludicrous, and the hoarding is irrevocable."

The rate at which we are adding new debt in the form of taxes to be paid back (what is it up to now a couple trillion?) and the incredible levels of losses in the form of stock market drop and drop in housing value are acting as multipliers on the recession.

For those reasons I think you are right about the problems of not being able to do anything about it. It remains to be seen if next year will show indicator improvements or continued weakness across all sectors.

I have been considering for some time now the value of just letting a number of industries, like the auto industry for example, just fail, forcing a consolidation and a retooling as a survival instinct, or at the very worst, letting others take over the assets who can make them work.

With all these banks and institutions being bailed out, it is really only encouraging poor managers to continue and under performing companies to remain.

You vote for Obama in the primaries and you get Clinton and 1/2 the old Clinton team anyways. I mean whats the point ? .. Obama's choice of Rahm Emanuel ( director at Freddie Mac ) as chief of staff assures this " bailout" is really more of a coverup . Herb Greenberg starting questioning Lanny Davis's ( Clinton lawyer and spokesman for a number of scams like LHSP ) Novastar in 2002. Big shot OSTK lawyer and one time possible Democratic candidate for Governor of Texas John O'Quinn was looking for a big payday over this naked shorting issue long before OSTK decided to hide its troubles by joining the naked shorting cause. Phil Saunders of www.nfi-info.net was hyping Lanny Davis's Novastar long before he made that famous call into the OSTK conference call. You recall the subpeanas Herb and others got from the SEC ? Well SEC wanted info on any communications those might have had concerning Novastar and others.....It looks to me with this Rahm Emanuel ( and other Clinton people ) pick Lanny Davis has insulated himself from taking any responsibility for this mortgage mess. ..Congress looks at the hedge funds . SEC Chairman blames the shorts. He bans the shorting of certain stocks...Its time someone got real. Now here is the headline we should be reading " Lanny Davis congratulates Phil Saunders and John O'Quinn on enlisting the help of super rich stooge Patrick Byrne on sending Cox and the SEC on a wild goose chase while subprime loans were laying the ground work for a total meltdown "

I voted for Obama. He has already lost me with his pick of Emanuel and others. I was 100% behind Bush when he came to NYC and said we were going to get those behind 9/11. He lost me the day he started blaming Iraq. ....And , just as in after 9/11 , both the press and both political parties are failing in thier coverage and oversight of this meltdown or bailout or whatever the talking heads are calling it.

Jamie Dimon ? Robert Rubin ? Governor Corzine ? Larry Summers ? Wait a minute here. For 25 years i have heard Larry Kudlow, Bill Clinton , one talking head after another tell me Anerica will do what it does best and thats financial services while the rest of the world will do what it does best and that is to supply cheap labor....Well After AIG and Lehman and Bear Strean....etc , etc. ..How long will the system play me for a fool ? ....The bailout is a cover up and the press is failing to do its job....Start with Herb Greenberg's coverage of Novastar. Look at what PMI group had to say about Novastar... Congress , both parties, Bush and now it appears Obama are giving you yellowcake , weapons of mass destruction, 5000 sleeper cells nonsense. ...Start with the SEC subpeanas of Gradient and Herb

Yep, sure thing Mr. Kudlow , CNBC etc, etc....We are going to do what we do best, financial services!!

Kieran: note that Dimon didn't blame risk-aversion for causing the problem; he blamed risk-aversion for making it harder to get out of the hole we dug.

Clearly, it was excessive risk-taking that caused the problem. Everybody from homeowners to CDO buyers to Russion oligarchs to investment banks to hedge fund managers added leverage to juice their returns. The great unwind continues.

Julian: I'm abivalent about taking your bet. Dimon is indeed at the top of his game, and he's a big part of the reason JPM shareholders are comfortable with the stock. That's why I put a question mark on the title of the piece. But he did sound a bit like he was running for something, which is what triggered the column.

I would sleep a lot better with Jamie Dimon staying at JPM to watch over JPM's $90 Trillion derivative book than have him go to Washington, but that's because I tend to worry over "the little things" of life.

its strange said: "The bailout is a cover up and the press is failing to do its job"

Here here! Personally, I tend to view the whole thing as a rehash of the Savings and Loan scandal from two decades or so ago.

I am convinced that the government has a black ops group going around borrowing trillions to pay for things like flying saucer research, underground santuaries, and various nefarious wars to keep the riff-raff in check! They were well funded for twenty years after the S&L crisis, but decided the only way to fix the US infrastructure and continue their saucer research was to do it again, only this time pulling away trillions from foreign as well as US taxpayers. Computers and better accounting practices made it impossible to hide the theft by charging $20,000 for a hammer or $100,000 for a toilet seat.

You know its true, how else could all that money have disappeared? Surely Obama's Acorn suit to force Citibank to lend billions to poor families incapable of paying it back has nothing to do with the crisis.

Gary Weiss reports Friday Patrick Byrne emailed the media a Youtude video that proves he predicted this meltdown. Perhaps he is running for Treasury ? He already has the support of both Utah Senators. Perhaps 60 minutes will allow him to make his case why he should be Treasury head to the American people. Its all on Gary Weiss.com

I'd much rather see Paul Volcker at Treasury. He's been through a similar crisis like the one we're in now and knows his way around Washington. He's got tons of credibility and if nominated, with his likely contacts in Washington, would be confirmed in no time. That's my hope but I could be wrong.

I love Kieran's suggestion of Prof. Schiller. Mr. Dimon is a solid candidate, but I have to agree that he probably does not want to leave JPM during this time. James Grant would also be an interesting choice but now we are just fantasizing. There is one choice that I would not be as thrilled with. Robert Rubin. I think his experience during the Clinton years would be fantastic and I think his book "In Uncertain World" is a great look inside the world of being the Secretary of Treasury for the United States....That said, you can not help but wonder, WHERE and WHAT was he doing at Citibank all these years while everyone was giving into the institutional imperative?? I would love to get a candid answer about that one day from him. Great Job as always Jeff. Keep up the interesting great work.

P.S. You are definitely aware of this b/c I noticed your qoute in the bloomberg article on BRK/A most recent Q results, but people are doubting WB again. I will say, the timing of your presentation at the Value Congress was spot on when it came to thinking about GE.

arte belle , I don't know about flying saucers research but i do know about Novastar and Lanny Davis. If the SEC did look at Gradient , as reported , than they also know about Novastar and Lanny Davis . The question than becomes why haven't they acted against them or www.nfi-info or Phil Saunders ? I mean a thorough review of Gradiants coverage of NFI by the SEC should have prompted action by the SEC . No ? There is alot more to this story . I guess you can start with Herb Greenberg's coverage before the internet, while he was working as a print reported. The SEC knows perfectly well he is a straight shooter and serious gumshoe. They have been reading him for 20 years ! ....Something very wrong here. The bailout looks like a cover up. Cox is trying to slip out the back door. As are others. ...

Great unwind indeed. Unfortunately, unlike Dimon, I think we're stuck in this unwind regardless of what investment managers and consumers decide to do. We're simply in too deep. And all the stimulus in the world is powerless to stop it.

David Merkel provides an excellent articulation of why this seems the most likely course, should anyone care to read further.

Jamie Dimon would be his best choice. He can get us out of this money mess.

I just hope he brings back the jobs he sent overseas.

One year when I worked for Bank Onewe were not allowed a holiday tree.So me being the type of person that I am sent him an email and we had tree within a week. My managers were mad at me and told me not to email him again. I did not do it again. Thank you Jamie.

H is so good at fixing finances. This current president elect would be so wise to get Jamie.

Great post, and I agree completely - except the part where you said Dimon's explanation was so simple even Senator Dodd could understand it. I doubt he could even understand something laid out that clearly...

We have a crisis in confidence that is making the fundamentals of the economy worse. It's confidence that a consumer needs to make a purchase...confidence that they'll stay in their home, that they'll have their job a month from now, that there will be better days ahead. That same confidence is needed for a guy like me to come out of hiding in my ING, US Bank, Chase money market funds. Risk aversion is fueled by a lack of confidence in what lies ahead.

Without confidence, we have no bottom in the economy or stocks. Jamie Dimon is one of the few individuals walking this Earth whose names still equals confidence in the mind of Americans.

I believe this announcement is one of a very few potential news items that could fuel a trememdous rally in financials.

And could it be argued that Warren's recent blunders in GS, GE, and potentially poorly timed short put positions could have actually tarnished the confidence typically surrounding his name?

Think of the change in Bill Miller's name, or Ed Lampert in just two short years.

I can't help but wonder if , with all these Clinton people and perhaps Hillary herself, Obama is protecting himself from a primary challenge in 2012 . Something like Kennedy and Carter in 1980 . It all tells me Obama doesn't have much faith in the bailout . And i can't find one member of the Obama team that warned about the troubles with subprime or leverage or lack enforcement of rule or laws. Its fascinating history. Its even more fascinating watching the powers that be write that history wrong.